Mr. Morrison "informed me that he is considering officially recognizing Jerusalem as the capital of Israel & moving the Australian embassy to Jerusalem".
Morrison told reporters that he would make an announcement on Tuesday regarding Jerusalem al-Quds and Australia's "No" vote for a United Nations resolution allowing Palestine to chair the Group of 77.
In May, the U.S. moved its embassy from Tel Aviv to the holy city despite indignation throughout the Arab world and protests within the Palestinian territories, which left 60 demonstrators dead.
Israel regards all of the city, including the eastern sector that it annexed after the 1967 Middle East war, as its capital while the Palestinians, with broad global backing, want East Jerusalem as the capital of a future state that they hope to establish in the occupied West Bank and the Gaza Strip.
"The Australian prime minister updated [Netanyahu] that he is weighing whether to formally recognize Jerusalem as Israel's capital and move the Australian Embassy to Jerusalem".
Jerusalem is also a holy city for the largely Muslim population of the Palestinian territories, and they feared that recognition of the city as a Jewish capital would imperil shared access to the many religious sites. "I think we have to challenge that", Morrison said.
Reacting to the news, the Palestinian ambassador to Canberra hit out at Morrison's "deeply disturbing" plan, urging Australia to "exercise caution".More news: Hunter kills British cyclist in France, police speak of accident
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Mr Marsudi said: "Indonesia asks Australia and other countries to support peace talks and not take steps that would threaten that peace process and stability of world security".
"I have made this decision without any reference to the United States".
Mr Trump opened the new U.S. embassy in the city in May.
While both Russian Federation and France offered to host delegations from Israel and Palestine for renewed peace talks, on December 6, 2017 Trump announced that the United States would recognize Jerusalem as Israel's capital.
The former government headed by PM Malcolm Turnbull rejected relocating the country's embassy to Jerusalem.
Canberra will also vote against recognizing the Palestinian Authority as the chair of the G77 group of developing nations at the UN, and would review its support for the Iran nuclear deal. The term "two-state solution" appears three times in Morrison and Payne's joint statement. Establishing a permanent diplomatic presence in Jerusalem, the PM argued, will not impede the potential creation of independent state of Palestine alongside the state of Israel.
In the decades since 1967, global consensus has been that the city's status must be negotiated between the two sides. As well as the West Bank and Gaza, Israel captured the eastern side of the city in 1967 from Jordanian forces.
If the embassy move is realized, Australia would become the third country in the world to have its envoys based in the disputed city.